Munchery Never Paid Its Three Babes Pie Bill

A year after food delivery startup Munchery abruptly closed, local vendors say the company never paid off its debts to them, leaving them struggling for survival. One of the most vocal of those vendors — Lenore Estrada, the co-founder of Three Babes Bakeshop — says that her business only managed to weather the storm because she stopped taking a salary.

As the year comes to a close, Eater San Francisco is following up on some of 2019’s biggest stories, to see how (or if) they were resolved. If you’re wondering how a food news item ended up, drop us a line.

Munchery, a San Francisco meal delivery startup that once boasted a valuation of $300 million and burnt through $125 million of venture capital since its founding in 2010, shut down on January 21, 2019, telling users via email that it was ending operations “effective immediately.”

This was a shock to Estrada, who told Eater SF at the time that the company hadn’t paid for Three Babes products it had ordered and received since before Thanksgiving. “We haven’t even gotten an email from them,” Estrada had said, noting that everyone at Munchery’s email addresses simply stopped working the day its closure was announced.

In an open letter to Munchery’s investors, Estrada wrote that the company had left $50,000 in unpaid bills to small local businesses, including the $20,000 it owed to Three Babes. By March, the company had declared bankruptcy, and, as TechCrunch reported at the time, it turned out that Munchery owed $3 million to vendors like Three Babes, $3 million more to customers with now-useless gift cards, $5.3 million in senior secured debt, and $23 million of convertible debt. CEO James Beriker stayed behind as the company’s sole employee, and was paid $18,000 per month as he oversaw — via consulting firm Armanino LLP — the sale of the company’s remaining assets for $5 million, a deal that got him an additional $125,000 “success fee.” (That fee was originally supposed to be $250,000, but the U.S. Trustee managing the bankruptcy proceedings balked at that payout. Armanino was also paid an initial sale advisory fee of $40,000, and a per-transaction fee of $25,000, the SF Business Times reported in June,)

In a bankruptcy proceeding, secured creditors get first dibs on a failed company’s assets. Since that amount, alone, exceeded what its assets brought in, things already looked bad for Three Babes’ payback. Add to that the $22 million still owed to second-tier investors, and repayment seemed like a distant possibility. Despite that, Estrada now tells Eater SF that she’d hoped that one of Munchery’s investors would step up. “There are lot of responsible investors who write a check to allow companies to shut down responsibly,” she says — and it didn’t seem impossible that that might also happen in Munchery’s case. But despite repeated calls and a follow-up open letter headlined “Munchery: How a venture-backed startup swindled a group of women and minority owned companies out of over $50,000 and is getting away with it,” Estrada confirmed to Eater SF this week that no one from backers like Menlo Ventures or Sherpa Capital (which has problems of its own) ever responded to her pleas for payment.

To keep Three Babes afloat — and to ensure that everyone who worked at her company still had a job — Estrada stopped taking a paycheck, she says. In addition, Farmgirl Flowers — an SF-based floral delivery service founded by Christina Stembel — donated a portion of its proceeds to Munchery vendors struggling after its collapse. “A completely women-owned company helped bail us out,” Estrada says, “but we never heard anything from Munchery’s VCs, investors, or the CEO.” (Eater SF approached Menlo Ventures and Beriker — who has since decamped to Portola Valley — for comment, but has not received a response as of publication time.)

“It’s been really hard” to bounce back from the shortfall, Estrada says, but Three Babes is still forging ahead. Plans are moving forward for its Mission District storefront, which Estrada says “is currently a construction zone.” It had hoped to open in its spot at 2797 16th Street in November, “but we were delayed substantially by being short” the Munchery money, Estrada says. Now she hopes to open in early 2020.

Despite everything, Estrada remains positive, saying that in the wake of Munchery’s closure, “the community really did rally to support us” and that “people continue to support us now.” “If they hadn’t,” Estrada says, “we’d be out of business, all because Munchery failed.”

• Meal Delivery Startup Munchery Closes for Good, Laying Off Hundreds [ESF]
• Meal Delivery Startup Munchery Stiffed SF Pie Company $20,000, Baker Says [ESF]
• Munchery Owes $6 Million to Vendors and Customers, Bankruptcy Filings Reveal [ESF]
• CEO of Failed Startup Munchery Gets Massive Payout for Selling Company HQ [ESF]
• Three Babes Will Bring Its Salty Honey-Walnut Pies to the Mission [ESF]